On 15 September 2020, the High Court handed down judgment in the COVID-19 Business Interruption Insurance test case brought by the FCA.
Policies under review are directly relevant to galleries, museums and other art market businesses, some of whom will have identical or similar insurance policies in place. The judgment provides answers as to whether a successful claim against insurers might succeed.
The Court held in favour of the policyholders on the majority of issues. In effect, most of the 21 sample policy clauses provide cover to the insurance holder. As a result, each insured business that suffered losses due to COVID-19 business disruption should consider their own policy wording and compare it with the wording analysed by the Court.
If the judgment is appealed, policyholders may not be succeed in their claim until the appeal has been heard. The next hearing is scheduled on 2 October 2020 and we should know then or shortly thereafter if the decision will be appealed.
Background
The FCA (as UK insurance regulator) brought the proceedings as a test case to determine whether sample policies could pave the way to claims as a result of losses suffered due to the COVID-19 disruption.
Eight defendant insurance companies have had their policies reviewed by the Court. They are:
- Arch Insurance (UK) Ltd
- Argenta Syndicate Management Ltd
- Ecclesiastical Insurance Office Plc
- MS Amlin Underwriting Ltd
- Hiscox Insurance Company Ltd
- QBE UK Ltd
- Royal & Sun Alliance Insurance Plc
- Zurich Insurance Plc
According to FCA estimates, 700 policies from 60 different insurers, and up to 370,000 businesses, could be affected by the test case.
What is Business Interruption Insurance?
Business Interruption Insurance generally covers loss of profits and expenses that a business might suffer because of damage to physical property, such as flooding or a fire. However, many policies have extensions for “non-damage” business interruption.
Sample Policy Wordings Tested by the Court
Due to the sheer number of policies with different wordings, the FCA identified 21 wordings taken from various policies. Those 21 test wordings can be categorised as follows:
- Disease Clauses: provisions which provide cover for business interruption in consequence of, following, or arising from, the occurrence of a notifiable disease within a specified radius of the insured premises.
- Prevention of Access Clauses: provisions which provide cover where there has been a prevention or hindrance of access to or use of the premises because of government or other authority action or restrictions.
- Hybrid Clauses: provisions which are engaged by restrictions imposed on the premises in relation to a notifiable disease.
The Judgment
Each individual case needs to be reviewed within the context of the policy. The Court held the following on each of the three categories.
Disease Clauses
The Court found that most of these clauses did provide cover if the loss resulted from:
- interruption or interference with the business;
- following / arising from / as a result of any notifiable disease / occurrence of a notifiable diseases / arising from any human infectious or human contagious disease manifested by any person; and
- within 25 miles / 1 mile / the “vicinity” of the premises / insured location.
Prevention of Access / Public Authority Clauses
Wording in this category may provide cover for loss resulting from:
- Prevention / denial / hindrance of access to the Premises;
- Due to actions / advice / restrictions of / imposed by order of a government / local authority /police / other body; and due to an emergency likely to endanger life / neighbouring property/incident within a specified area.
Hybrid Clauses
Cover may be available for losses from:
- An interruption to the business;
- Due to an inability to use the premises;
- Due to restrictions imposed by a public authority; and
- Following an occurrence of disease.
Implications
The judgment is good news for many insured businesses with business interruption policies, including art market participants. It provides some clarity and guidance, but each policy needs to be considered on its own merit and within its own context. Those art market participants with policies including Disease Clauses similar to the ones reviewed by the Court, will likely be covered. Museums and galleries are listed in the Schedule to the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 of 26 March 2020. As a result, they were required to close because of the COVID-19 pandemic. Therefore, even if a museum or gallery is not covered by a specific Disease Clause, cover could be available under a Prevention of Access or Hybrid Clause.
All such policies should be carefully reviewed, and we would urge art market participants to do so.
Please also note that insurers are expected to write to policyholders within seven days to explain next steps. It would be prudent for art market participants to review the terms of their policy prior to communicating with their insurers.
By Till Vere-Hodge and Andreas Killi